For an understanding of just how weak the business press's understanding of economic fundamentals is, look no further than Paul Wiseman's brief "coverage" at the Associated Press Wednesday of the Federal Reserve's awful Industrial Production.
The Fed reported yesterday that industrial production fell by 0.6 percent in November on top of a revised -0.4 percent (down from -0.2 percent) in October. None of the three major industrial components turned in a positive November result (Manufacturing, flat; Mining, -1.1 percent; Utilities, -4.3 percent). Additionally, industrial production in the past 12 months has fallen by 1.2 percent, an occurrence which has historically been a recessionary red flag. But that's okay, Wiseman reassured readers, because "the American economy is relatively healthy thanks to solid consumer spending."
First, consumer spending isn't all that "solid."
As I've noted before, real personal consumption expenditures have only increased by 0.8 percent in the past five reported months (June through October), with puny +0.1 percent results in both September and October. The past five months' pickup annualizes to about 2.0 percent — a performance which, if replicated for a full calendar year, would represent the 14th-worst reported growth in consumption in the past 68 years (five of the other 13 have occurred since Democrats took control of Congress in the 2006 midterm elections; hence the need to describe a pathetic result as "relatively healthy").
Covering a more recent time period, seasonally adjusted retail sales, before adjustments for inflation, have increased by a "whopping" 0.23 percent in the past four reported months (from $447.097 billion in July to November's advance result of $448.117 billion). That's an average of less than 0.06 percent per month. What is "relatively healthy" about that, Paul?
Second, consumer spending, weak as it has been, is being artificially juiced by government largesse and easy money.
Student loans in record amounts are funding college educations. As of September, this supposedly "relatively healthy" economy still had 45.4 million Americans on food stamps; in 2007, when the unemployment rate was last at or below 5 percent, that figure was 26.3 million, and was then considered alarmingly high. Finally, vehicle sales, supposedly the strongest area of "spending," are really being fed by borrowing, with record loan amounts, an average loan length of 5-1/2 years, and increasing exposure to those with weak credit histories.
Finally and more fundamentally, consumer spending, if it were healthy, which it isn't, is not in and of itself an indicator of economic health. Instead, it is the end result of the production of goods and services which led to it. The Obama economy has been marked by low business investment. This has led to subpar growth — still the worst post-recession growth since World War II by miles — because entrepreneurs, investors and business executives don't see enough opportunities, and because overbearing regulations are making the profitable operation of existing businesses as difficult as ever.
In the bigger picture, when you're in an economy where people are worried that a quarter-point rate hike by the Fed from virtually zero might actually do serious harm, you're not describing a "healthy" situation.
The explosive growth seen in the 1980s occurred despite double-digit interest rates. The strong economy of the late-1990s until 2000 saw prime interest rates of between 7.75 percent and 9.5 percent, or about 4-6 points higher than the just-announced increase to 3.5 percent. Yet people are concerned, with justification, that a prime rate of 3.5 percent might endanger the economy. Why? Because it's not genuinely "healthy" or even "relatively healthy," despite the insistence of people like Paul Wiseman and others in the business press.
Cross-posted at BizzyBlog.com.
